Military expenditures were greatly increased during Isabella's reign and Spain rose to a position as the world's fourth largest naval power.

[2] In the 1850s and 1860s, the Spanish engaged in colonial activities around the world, including in Morocco, the Philippines, Mexico, and the Dominican Republic, the last of which it briefly reoccupied.

At the end of 1862, Spain sent a scientific expedition to South American waters with the covert purpose of reinforcing the financial and legal claims of Spanish citizens residing in the Americas.

[2] The expedition was under the command of Admiral Luis Hernández-Pinzón Álvarez [es], a direct descendant of the Pinzón brothers, who had accompanied Christopher Columbus on his voyage that resulted in the modern European discovery of the Americas.

[5][clarification needed] When news of the incident reached Pinzón, he returned with his fleet to Peru on November 13 and demanded for its government to issue an apology and for reparations be made to the affected Spanish nationals.

That was a deliberate insult to the government of Peru because a commissary is a colonial functionary, rather than an ambassador, the normal level of diplomatic contact during consultations between independent states.

On April 14, 1864, in retaliation for Peru's refusal to pay an indemnity, the Spanish fleet seized the lightly defended Chincha Islands, the main source for Peruvian guano resources.

Spain considered the islands an important bargaining chip, as they were a major Peruvian economic asset and produced almost 60% of the government's annual revenue.

[2] The Spanish squadron also blockaded principal Peruvian ports, disrupting commerce and fostering a high level of resentment throughout Latin America.

Pareja arrived in Peru in December 1864 and immediately opened negotiations with General Manuel Ignacio de Vivanco, the special representative of Peruvian President Juan Antonio Pezet.

Vice Admiral José Manuel Pareja thus took a hard line and demanded sanctions against Chile that were even heavier than those imposed upon Peru.

The engagement had the Chilean corvette Esmeralda capture the Spanish schooner Covadonga, taking the crew prisoner and seizing the admiral's war correspondence.

[7] The general command of the Spanish fleet in the Pacific was assumed by Commodore Casto Méndez Núñez, who quickly received a promotion to rear admiral.

On November 7, 1865, his unwillingness to declare war on Spain and the vilification arising from his signing of the Vivanco-Pareja Treaty forced Peruvian President Juan Antonio Pezet from office.

Spain's Admiral Mendez Núñez sent two of his most powerful ships (the frigates Villa de Madrid and Reina Blanca) south to destroy the combined Chilean-Peruvian fleet.

The Allied squadron had been placed under the command of Peruvian Captain Manuel Villar and had taken refuge at Abtao, a well-protected inlet near the gulf of Chiloé, in southern Chile.

Reluctant to enter shallow waters and realizing that a long-range gun duel would serve no purpose but to waste ammunition, the Spanish commanders withdrew.

On its way back to Valparaiso, the Spanish squadron captured a Chilean steamship, Paquete del Maule, which was transporting sailors to crew the new Peruvian ironclads Huáscar and Independencia.

Admiral Mendez Núñez, displeased at having to resort to destroying defenseless targets such as Valparaiso and with the inconclusive result at Abtao, decided to change tactics and to attack a heavily defended port.

Spanish guns had managed to cause only limited damage to defenses, and most of the cannons, artillery, and buildings in Callao itself survived the battle intact.